The financial success of dairy farms depends critically on the price of their main output, milk. Large volatility in the price of milk poses a considerable business risk to dairy farms. This is particularly true for family-run dairy farms. The question then arises: how can a farm owner hedge the milk price risk? The standard approach to establish a price floor for a commodity such as milk is to purchase put options on commodity futures. At the Chicago Mercantile Exchange, farmers can buy put options on the price of a variety of milk products. However, the price a farm receives for its milk depends on many factors and is unique to the farm. Thus, a farmer cannot directly buy put options on the price he receives for the milk his farm produces. Instead the farmer needs to determine which of the options available for trade at the Chicago Mercantile Exchange offer the best hedge for his own milk price. The assignment in this case is to examine historical data on several prices of milk products and the milk price received by a family-run dairy farm in California. Students need to find the price that is most closely correlated to the farm's milk price and to then choose options with the appropriate strike price that serve as the best hedge for the farm's price risk.
Authors :: Karl Schmedders, Patrick Johnston, Charlotte Snyder
Swot Analysis of "Milk and Money" written by Karl Schmedders, Patrick Johnston, Charlotte Snyder includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Milk Price facing as an external strategic factors. Some of the topics covered in Milk and Money case study are - Strategic Management Strategies, Financial markets and Finance & Accounting.
Some of the macro environment factors that can be used to understand the Milk and Money casestudy better are - – increasing energy prices, technology disruption, geopolitical disruptions, wage bills are increasing, increasing inequality as vast percentage of new income is going to the top 1%, increasing transportation and logistics costs, increasing government debt because of Covid-19 spendings,
increasing household debt because of falling income levels, there is increasing trade war between United States & China, etc
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Milk and Money case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Milk Price, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Milk Price operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of Milk and Money can be done for the following purposes –
1. Strategic planning using facts provided in Milk and Money case study
2. Improving business portfolio management of Milk Price
3. Assessing feasibility of the new initiative in Finance & Accounting field.
4. Making a Finance & Accounting topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Milk Price
Strengths Milk and Money | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Milk Price in Milk and Money Harvard Business Review case study are -
Learning organization
- Milk Price is a learning organization. It has inculcated three key characters of learning organization in its processes and operations – exploration, creativity, and expansiveness. The work place at Milk Price is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in Milk and Money Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
Strong track record of project management
– Milk Price is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Ability to recruit top talent
– Milk Price is one of the leading recruiters in the industry. Managers in the Milk and Money are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
High switching costs
– The high switching costs that Milk Price has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.
Superior customer experience
– The customer experience strategy of Milk Price in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Organizational Resilience of Milk Price
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Milk Price does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Highly skilled collaborators
– Milk Price has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive segment. Secondly the value chain collaborators of the firm in Milk and Money HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
Sustainable margins compare to other players in Finance & Accounting industry
– Milk and Money firm has clearly differentiated products in the market place. This has enabled Milk Price to fetch slight price premium compare to the competitors in the Finance & Accounting industry. The sustainable margins have also helped Milk Price to invest into research and development (R&D) and innovation.
High brand equity
– Milk Price has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Milk Price to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Diverse revenue streams
– Milk Price is present in almost all the verticals within the industry. This has provided firm in Milk and Money case study a diverse revenue stream that has helped it to survive disruptions such as global pandemic in Covid-19, financial disruption of 2008, and supply chain disruption of 2021.
Effective Research and Development (R&D)
– Milk Price has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in, as mentioned in case study Milk and Money - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Analytics focus
– Milk Price is putting a lot of focus on utilizing the power of analytics in business decision making. This has put it among the leading players in the industry. The technology infrastructure suggested by Karl Schmedders, Patrick Johnston, Charlotte Snyder can also help it to harness the power of analytics for – marketing optimization, demand forecasting, customer relationship management, inventory management, information sharing across the value chain etc.
Weaknesses Milk and Money | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Milk and Money are -
Slow to strategic competitive environment developments
– As Milk and Money HBR case study mentions - Milk Price takes time to assess the upcoming competitions. This has led to missing out on atleast 2-3 big opportunities in the industry in last five years.
High dependence on existing supply chain
– The disruption in the global supply chains because of the Covid-19 pandemic and blockage of the Suez Canal illustrated the fragile nature of Milk Price supply chain. Even after few cautionary changes mentioned in the HBR case study - Milk and Money, it is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Milk Price vulnerable to further global disruptions in South East Asia.
High operating costs
– Compare to the competitors, firm in the HBR case study Milk and Money has high operating costs in the. This can be harder to sustain given the new emerging competition from nimble players who are using technology to attract Milk Price 's lucrative customers.
Products dominated business model
– Even though Milk Price has some of the most successful products in the industry, this business model has made each new product launch extremely critical for continuous financial growth of the organization. firm in the HBR case study - Milk and Money should strive to include more intangible value offerings along with its core products and services.
Low market penetration in new markets
– Outside its home market of Milk Price, firm in the HBR case study Milk and Money needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
Interest costs
– Compare to the competition, Milk Price has borrowed money from the capital market at higher rates. It needs to restructure the interest payment and costs so that it can compete better and improve profitability.
Workers concerns about automation
– As automation is fast increasing in the segment, Milk Price needs to come up with a strategy to reduce the workers concern regarding automation. Without a clear strategy, it could lead to disruption and uncertainty within the organization.
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study Milk and Money, is just above the industry average. Milk Price needs to redesign the compensation structure and incentives to increase the revenue per employees. Some of the steps that it can take are – hiring more specialists on project basis, etc.
Skills based hiring
– The stress on hiring functional specialists at Milk Price has created an environment where the organization is dominated by functional specialists rather than management generalist. This has resulted into product oriented approach rather than marketing oriented approach or consumers oriented approach.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study Milk and Money, in the dynamic environment Milk Price has struggled to respond to the nimble upstart competition. Milk Price has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
High dependence on star products
– The top 2 products and services of the firm as mentioned in the Milk and Money HBR case study still accounts for major business revenue. This dependence on star products in has resulted into insufficient focus on developing new products, even though Milk Price has relatively successful track record of launching new products.
Opportunities Milk and Money | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities highlighted in the Harvard Business Review case study Milk and Money are -
Building a culture of innovation
– managers at Milk Price can make experimentation a productive activity and build a culture of innovation using approaches such as – mining transaction data, A/B testing of websites and selling platforms, engaging potential customers over various needs, and building on small ideas in the Finance & Accounting segment.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Milk Price can build a diversified supply chain model across various countries in - South East Asia, India, and other parts of the world. This reconfiguration of global supply chain can help, as suggested in case study, Milk and Money, to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Milk Price can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Buying journey improvements
– Milk Price can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. Milk and Money suggest that firm can provide automated chats to help consumers solve their own problems, provide online suggestions to get maximum out of the products and services, and help consumers to build a community where they can interact with each other to develop new features and uses.
Low interest rates
– Even though inflation is raising its head in most developed economies, Milk Price can still utilize the low interest rates to borrow money for capital investment. Secondly it can also use the increase of government spending in infrastructure projects to get new business.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Milk Price can use these opportunities to build new business models that can help the communities that Milk Price operates in. Secondly it can use opportunities from government spending in Finance & Accounting sector.
Manufacturing automation
– Milk Price can use the latest technology developments to improve its manufacturing and designing process in Finance & Accounting segment. It can use CAD and 3D printing to build a quick prototype and pilot testing products. It can leverage automation using machine learning and artificial intelligence to do faster production at lowers costs, and it can leverage the growth in satellite and tracking technologies to improve inventory management, transportation, and shipping.
Creating value in data economy
– The success of analytics program of Milk Price has opened avenues for new revenue streams for the organization in the industry. This can help Milk Price to build a more holistic ecosystem as suggested in the Milk and Money case study. Milk Price can build new products and services such as - data insight services, data privacy related products, data based consulting services, etc.
Reconfiguring business model
– The expansion of digital payment system, the bringing down of international transactions costs using Bitcoin and other blockchain based currencies, etc can help Milk Price to reconfigure its entire business model. For example it can used blockchain based technologies to reduce piracy of its products in the big markets such as China. Secondly it can use the popularity of e-commerce in various developing markets to build a Direct to Customer business model rather than the current Channel Heavy distribution network.
Learning at scale
– Online learning technologies has now opened space for Milk Price to conduct training and development for its employees across the world. This will result in not only reducing the cost of training but also help employees in different part of the world to integrate with the headquarter work culture, ethos, and standards.
Changes in consumer behavior post Covid-19
– Consumer behavior has changed in the Finance & Accounting industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Milk Price can take advantage of these changes in consumer behavior to build a far more efficient business model. For example consumer regular ordering of products can reduce both last mile delivery costs and market penetration costs. Milk Price can further use this consumer data to build better customer loyalty, provide better products and service collection, and improve the value proposition in inflationary times.
Developing new processes and practices
– Milk Price can develop new processes and procedures in Finance & Accounting industry using technology such as automation using artificial intelligence, real time transportation and products tracking, 3D modeling for concept development and new products pilot testing etc.
Leveraging digital technologies
– Milk Price can leverage digital technologies such as artificial intelligence and machine learning to automate the production process, customer analytics to get better insights into consumer behavior, realtime digital dashboards to get better sales tracking, logistics and transportation, product tracking, etc.
Threats Milk and Money External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Milk and Money are -
Regulatory challenges
– Milk Price needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Finance & Accounting industry regulations.
High level of anxiety and lack of motivation
– the Great Resignation in United States is the sign of broader dissatisfaction among the workforce in United States. Milk Price needs to understand the core reasons impacting the Finance & Accounting industry. This will help it in building a better workplace.
Capital market disruption
– During the Covid-19, Dow Jones has touched record high. The valuations of a number of companies are way beyond their existing business model potential. This can lead to capital market correction which can put a number of suppliers, collaborators, value chain partners in great financial difficulty. It will directly impact the business of Milk Price.
Consumer confidence and its impact on Milk Price demand
– There is a high probability of declining consumer confidence, given – high inflammation rate, rise of gig economy, lower job stability, increasing cost of living, higher interest rates, and aging demography. All the factors contribute to people saving higher rate of their income, resulting in lower consumer demand in the industry and other sectors.
Increasing wage structure of Milk Price
– Post Covid-19 there is a sharp increase in the wages especially in the jobs that require interaction with people. The increasing wages can put downward pressure on the margins of Milk Price.
High dependence on third party suppliers
– Milk Price high dependence on third party suppliers can disrupt its processes and delivery mechanism. For example -the current troubles of car makers because of chip shortage is because the chip companies started producing chips for electronic companies rather than car manufacturers.
Instability in the European markets
– European Union markets are facing three big challenges post Covid – expanded balance sheets, Brexit related business disruption, and aggressive Russia looking to distract the existing security mechanism. Milk Price will face different problems in different parts of Europe. For example it will face inflationary pressures in UK, France, and Germany, balance sheet expansion and demand challenges in Southern European countries, and geopolitical instability in the Eastern Europe.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Milk Price in the Finance & Accounting industry. The Finance & Accounting industry is already at various protected from local competition in China, with the rise of trade war the protection levels may go up. This presents a clear threat of current business model in Chinese market.
Technology disruption because of hacks, piracy etc
– The colonial pipeline illustrated, how vulnerable modern organization are to international hackers, miscreants, and disruptors. The cyber security interruption, data leaks, etc can seriously jeopardize the future growth of the organization.
Technology acceleration in Forth Industrial Revolution
– Milk Price has witnessed rapid integration of technology during Covid-19 in the Finance & Accounting industry. As one of the leading players in the industry, Milk Price needs to keep up with the evolution of technology in the Finance & Accounting sector. According to Mckinsey study top managers believe that the adoption of technology in operations, communications is 20-25 times faster than what they planned in the beginning of 2019.
New competition
– After the dotcom bust of 2001, financial crisis of 2008-09, the business formation in US economy had declined. But in 2020 alone, there are more than 1.5 million new business applications in United States. This can lead to greater competition for Milk Price in the Finance & Accounting sector and impact the bottomline of the organization.
Easy access to finance
– Easy access to finance in Finance & Accounting field will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Milk Price can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Backlash against dominant players
– US Congress and other legislative arms of the government are getting tough on big business especially technology companies. The digital arm of Milk Price business can come under increasing regulations regarding data privacy, data security, etc.
Weighted SWOT Analysis of Milk and Money Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers in the HBR case study Milk and Money needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of the case study Milk and Money is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of the Harvard case study Milk and Money is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of Milk and Money is to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Milk Price needs to make to build a sustainable competitive advantage.
